Chase, Citi in bout to build branches

J. P. Morgan Chase & Co. recently took the stage in one of New York's best hotels to talk up the banking company's latest, greatest idea for pumping up profits: opening more branches.

Addressing a group of money managers, retail bank chief Charlie Scharf said, "There's an enormous advantage to the rest of the company in building this business."

The sentiment is much the same a few blocks away, at Citigroup Inc.'s Park Avenue headquarters. "We are definitely ramping up branch operations," says Ray Quinlan, Citi's chief executive of North American retail distribution.

For the first time in years, New York's two largest banks are on the same page. Both have flashed the message that they're all about retail banking. The difference is that while J. P. Morgan has already poured vast sums into its effort, Citigroup has barely begun. "J. P. Morgan is definitely further along," says Jeff Harte, an analyst with New York investment bank Sandler O'Neill & Partners.

Even with interest rates rising, branches remain attractive because they hold checking accounts, and mountains of cash, on which the banks pay little or no interest. "Checking accounts are the core to the whole banking relationship, as well as being the most profitable relationship," says John Simons, a managing director of New York investment bank Corporate Fuel Partners.

In many ways, J. P. Morgan's bold branching push began with its $58-billion acquisition of Chicago's Bank One Corp. last year. That purchase more than tripled its branch network, to 2,300 across 17 states. This year, under Jamie Dimon, the former Bank One chief who will become J. P. Morgan's CEO at yearend, the company is adding about 150 branches.

J. P. Morgan has added about 500 ATMs in its main markets. The bank has also stepped up its retail hiring and advertising.

The price tag for each new branch comes to about $3 million. J. P. Morgan's Mr. Scharf concedes that "it's a lot" multiplied by 150, but he predicts that the investment will pay off in the form of "very strong returns for a very long time."

Citi risks slipping because of its lack of aggression in building more domestic retail outlets. In the past two years, the number of its branches has stagnated.

Citi expects to add about 23 branches by yearend, and plans call for increasing that number slightly next year. Some analysts still say Citibank's weak branch network is a shortcoming in its retail strategy.

"The local bank in someplace like Iowa is going to be able to outsell Citibank, even though half of the banking customers might have Citibank cards in their wallets," says Mr. Simons at Corporate Fuel.